Tuesday, September 11, 2012

A leap of faith for industrial peace.

Getting past traditional paradigms and belligerent confrontation in labour relations has become critical.

Unions don’t play nicely. The history of the labour movement over the last century or more is tainted with blood, violence, intimidation and coercion. Our own experience in the 80’s when new unions were being formed was no different and we did not need a Marikana tragedy to remind us of how ugly the conflict between labour and capital can become when it is framed in highly charged traditional, emotive and largely ideological paradigms.

Whatever the past justifications were for this violent and highly disruptive confrontation, and there were plenty, we simply have to get past it now. Our third lowest World Competitiveness report ranking in industrial relations is a lot more than just another shameful statistic. It is the real elephant in the room to which the critical problems of unemployment, poverty and inequality can be validly and more directly linked, perhaps even sourced. An economic “CODESA” has much merit, but it will find a massive stumbling block in the way our labour relations have developed over the last few decades. Dismantling this cumbersome and antagonistic system will require a huge leap of faith equal to CODESA. It needs to go back to the basics and question all the holy cows such as labour rights, collective bargaining, profit maximisation and shareholder supremacy.

Many of the issues involved are beyond the scope of this article, so I’ll touch on only a few and with some recognition of their quixotic nature. One that has been mooted is to encourage the growth of competitive Unions – of having a number of labour benefit tuck-shops in the workplace as it were. In the present climate it will simply see a repeat of the 1980’s, encourage mob rule and intensify the underlying tensions that led to Marikana. In theory it does have merit such as exposing flaws in collective bargaining, fragmenting centralised union power and allowing greater flexibility in differentiated pay for various employee tiers. This has already happened to some degree. But if unions and marginalised groups start vying for the same broad based support it will simply fuel already explosive expectations and exacerbate an ideologically charged environment.

Free market utopian theory has always been tempered by social values and needs. But it is useful occasionally to challenge the extent to which these may have become murky, counter-productive, and to expose some flaws in current assumptions. One is that the true value of labour is determined by the supply and demand for skills and qualifications itself, or worse still, by the bargaining power of a collective. This is not strictly true. The value of any product, service or effort is determined by the end user or buyer in free and fair legitimate transaction. In a company’s case, the true value of the combined efforts of both labour and capital can only be established when that product or service has been sold to an outside customer.

What this says is that irrespective of how much can be extorted from bosses or remuneration committees, or what certificates of competence may be presented to support a certain pay level, the real sustainable value is determined by a completely neutral outside force that finds those efforts useful and meaningful.

The firmer the link between real and established value-added or wealth creation, and rewards in the form of remuneration and profit, the more valid and sustainable they become. In a healthy competitive environment there are clear limits to which one can reverse this process – in other words predetermine and insist on certain rewards and then extort these demands from an outside customer. We have clearly passed those limits in South Africa and the price we are now paying is growing unemployment, a decline in competitiveness both in exports and against imports and ultimately higher inflation.

There really is only one way to restore this link – and it implies the outrageous suggestion of breaking away from rigid centralised, collective and horizontal wage bargaining across sectors, industries, and occupations, to site and company specific bargaining. This may mean that people in a small clothing factory in Natal could be paid less than those say in a large manufacturer in Gauteng. Or that a seamstress at company X could be paid less than a seamstress in company Y.

There have been some mild and very tentative steps along these lines, but its full expression will always be severely hampered until another equally, if not more outrageous concept is introduced – flexible pay in the form of fortune sharing. A transparent, understood and well communicated flexible pay system – initially only a small proportion of pay need be put at risk – will enhance perceptions of fairness while promoting understanding and company involvement. It will encourage greater responsiveness to customer needs and enhance workplace meaning in a spirit of “people serving people”, which is the essence of all transactions after all.

Where collective bargaining/consulting will be useful is in creating with market guidance benchmarks for optimum wealth distribution between labour, capital and state – the three contributors to the creation of wealth. The labour share will still be subject to the disciplines of differentiated pay according to competencies and experience, but these can be determined not in absolute amounts but rather in acceptable Gini type multiples between lowest skilled and highest.

Of course it could be argued with some merit that smaller and less profitable companies may find it difficult to attract top skills. But that is also true for the current model. In addition nothing should stop a company from transparently and through negotiation, adjusting the differentials as needed, while many skilled people could be attracted to smaller companies that give them greater involvement and a chance to improve their rewards through greater efforts, which is implied in fortune sharing.

Shareholder concessions are also implicit in greater flexibility. There has to be a move away from unbridled maximisation of profit to meeting defined legitimate profit expectations based on and regularly adjusted to the specific capital structure of that company. There are ways these can be benchmarked, one being through EVA. Once the shareholder’s cut of value added or wealth creation has been agreed upon, then shareholder fortunes also become linked to wealth creation – a move which most likely will see greater benefits and certainly greater sustainability.

What we have lost in labour relations is the understanding that trade Unions cannot provide for the care and growth of employees. Only management can. They too are ultimately constrained by customer tolerance, or enabled by customer approval.

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